Dollar channel gets lucrative

By Michael Johnsen

WHAT IT MEANS AND WHY IT'S IMPORTANT Retailers operating outside of the dollar channel are beginning to experience some night terrors. Because the fear is, what if American consumers learn from this bargain-hunting experience once the economy recovers? What if they decide quality and convenience in a dollar store today is comparable with other channels, and that the only real point of difference is the price point? Sure, there are some analysts who feel that once American shoppers are carrying a few more discretionary dollars in their pockets, they’ll go back to their previous shopping habits. But what if they don’t?

(THE NEWS: Getting it done at Dollar General. For the full story, click here)

“Some investors expect shoppers to move away from [the dollar] channel when the economy improves,” commented Barclays Capital analyst Meredith Adler in a recent dollar-channel research note. “We believe, however, that the strong small-box discounters will retain a large percentage of their consumers, as the recession has, in some cases, newly introduced these concepts to consumers.”

There probably are a few drug-channel veterans at Dollar General that would concur with Adler, and it seems they may be striking while the iron is hot. Just last month, Dollar General began test marketing an expanded product offering by adding beer and wine to its mix across Florida, South Carolina and Tennessee. Over time, Dollar General expects to offer beer and/or wine in about half of its 9,000 stores nationwide, the company stated.

If successful, exploiting such merchandising opportunities could continue to transform the dollar channel from the treasure-hunting opportunity it was in the past to the value-conscious destination center it’s fast becoming today. And that’s when the real nightmares begin for competing mass merchants.